Business Angels Research Articles

Micro VC

Given its spectacular growth in recent years, venture capital is gaining significant attention among strategy scholars. In this paper, we shed light on a novel and unexplored phenomenon, namely the emergence of small-sized VC funds (micro VC hereafter). Using US data from 2000 to 2020, we show that micro VC has experienced a remarkable increase, which is economically larger than that of business angels and traditional VC. Moreover, we show that micro VC has an idiosyncratic investment style, more focused on founders and early-stage firms. Studying the performance implications for startups, we find that being backed by micro VC has a much smaller effect than traditional VC on the subsequent number of rounds and the amount raised. Moreover, while micro VC increases the likelihood of startups’ success, the effect is half of that of traditional VC. Micro VC’s performance is even poorer when the fund manager is a former founder.

Attracting Business Angels: Does Signaling Sustainability Pay Off for Commercial New Ventures?

Attracting Business Angels: Does Signaling Sustainability Pay Off for Commercial New Ventures?

Using network partnerships in management consulting

The article discusses the use of network partnership in the process of interaction between the consultant and the client in the framework of the search, the client’s receipt of investments and further project support. Traditionally, the process of interaction between the client and the consultant is presented in such a way that only these two parties are the main participants in the consultation process. The article discusses the experience of building a multidisciplinary complex consulting process, in which many participants are involved. This experience is based on the practice of the Business Angels of Russia network community. This article analyses the practice of mainly small consulting organisations that are very different from large ones and provide significantly more customised services. The consulting related to investing funds in the client’s business is in the author’s focus. At the same time, only clients belonging to small and medium-sized enterprises naturally stand out in the work. As a rule, they do not seek advice from wellknown and renowned brands in the field of consulting services. As a rule, they do not have enough money for their services, and large consulting firms themselves choose mainly large clients to work with.

Problems of Legal Assessment of Business Accelerators in the Russian Federation

The paper focuses on such an economic and legal phenomenon as a business accelerator. Despite the fact that business accelerators are widespread in Russia, little is known about their legal status and regulation. What is the legal definition of accelerator programs? What is the difference between accelerators, incubators, business angels and a collaborative environment? The relevance of the study is also influenced by the public sector’ interest of the in participating in such programs. Business accelerator programs allow you to teach a novice entrepreneur how to develop an effective business model, financially support its implementation by attracting investment funds. Current trends in the development of startups are that business accelerators will soon be available for all projects with commercial efficiency. Therefore, it is important to determine the legal status of business accelerators, their role in business development, the degree and forms of state participation in the activities of accelerators. The paper attempts to answer the above questions.

Success Factors in Equity Crowdfunding – Evidence from Crowdcube

Abstract Equity crowdfunding has been gaining more and more relevance as an alternative way for entrepreneurs to raise capital. This paper examines the impact of retained equity, business angel backing, grants and intellectual property rights on the success of equity crowdfunding. Using data from Crowdcube, one of the leading equity crowdfunding platforms in the world, we obtain 473 pitches within the period from March 2017 to February 2020. We apply three empirical methods to analyse our data set: logistic regression, multiple linear regression and negative binomial regression. By running univariate test and several regression analyses, we find that retained equity has a significantly negative impact on funding success; also, the support of business angels helps entrepreneurs to achieve a funding success. While winning grants is more likely to attract investors, there is no direct evidence associated with funding success. Furthermore, it turns out that intellectual property rights are not relevant for funding success. In an extension, we re-examine our analysis in the light of the Corona crisis by analysing 95 pitches from March to November 2020. We find no structural changes in relevance of the success factors.

Effects of the quality of science and innovation on venture financing: evidence from university spinoffs in Japan

ABSTRACT University spinoffs build on strong science, which renders them a significant source of radical innovation. Radical innovation entails uncertainty as there is no market to target, which calls for individuals and organizations that bridge the gap between embryonic inventions and opportunity yet to exist. Recognizing that the commercial success of university spinoffs hinges on the entrepreneurial ecosystems they are embedded in, this study establishes an unbalanced panel (2015–2020) to analyse interrelationships among the key factors in the university spinoff ecosystem: science, innovation, and venture financing. Estimation results reveal that, first, the quality of science increases the probability of university spinoffs acquiring risk money from venture capitalists and business angels. Second, the quality of innovation has a positive effect on venture capital funding. Third, venture capital funding positively affects sales growth of university spinoffs, which corroborates the coach function of entrepreneurial intermediaries that offer startups hands-on support.

The internationalization of business angel networks: do syndicates increase cross-border investment returns?

ABSTRACT This paper investigates the performance effects of cross-border business angel investments. Examining 815 investments on a business angel investment platform, we find an inverted U-shaped relationship between (geographic and cultural) distance and investment returns. We further show that business angels in large syndicates are less sensitive to the costs of both geographic and cultural distance and earn consistently higher returns. Our study contributes to the literature on business angel internationalization and highlights the role of co-investment networks: network resources allow business angels to mitigate transaction costs associated with cross-border investments and improve their investment returns.

Типологія чинників формування моделей кредитно-інвестиційної політики в національній економіці

The article considers the approaches to defining the concept of «credit and investment policy» and the factors influencing the formation of models of credit and investment policy in the national economy. The authors typologize all factors of influence in five groups: institutional, economic, sociopsychological, infrastructural and technological. The authors propose to include the following factors to the technological group: the share of non-cash transactions, the number of broadband Internet users and the level of use of information and communication technologies. It is also suggested to add to the existing factors the following: level of financial literacy and technical education of the population, existence of state and regional investment funds, open accreditation of investment advisers, penalties for violation of investment or lending conditions, regulation of investment funds and credit unions, public confidence in state bodies, the presence of active business angels, access to credit resources, investor protection, venture capital, the amount of savings in the population. It is worth noting that the level of financial literacy has a significant impact due to the fact that the population with a higher level of financial literacy will invest more in their own savings, which will lead to an increase in private investment in Ukraine. Developed countries have long introduced educational financial and investment programs to improve financial knowledge, thereby encouraging people to save more and, as a result, to invest. Another important aspect is the development of financial literacy in the younger generation, because, according to the Organization for Economic Cooperation and Development, the purchasing power of young people (up to 25 years) is growing every year. It is concluded that the process of developing models of credit and investment policy and methods of evaluating their effectiveness need further research. Particular attention should be paid to the development of practical tools and methods for developing the credit and investment potential of the state.

Study on private equity investment growth and infrastructure in India

We use to investigate the investment criteria of 749 private equity investors, growth equity funds, and leveraged buyout funds. Our results indicate that revenue growth is the most important investment criterion, followed by the value-added of product/service, the management team's track record, and profitability. Regarding differences across investor types, we find that family offices, growth equity funds, and leveraged buyout funds place a higher value on profitability as compared to business angels and venture capital funds. Venture capital funds, in turn, pay more attention to companies' revenue growth, business models, and current investors. With these results, our study contributes to the corporate finance literature by deepening our understanding of how different types of private equity investors make investment decisions.

Determinants of equity financing: a demand-side analysis of Irish indigenous technology-based firms

Abstract Successful high-technology industries enhance productivity, competition, and consumer choice. To support their innovating activities, these firms need access to finance. Given the uncertain nature of innovation, along with the high associated cost, many firms turn to equity financing. Using novel survey data for 153 indigenous equity and 141 indigenous non-equity financed high-tech firms, we examine what determines how these firms raise equity finance (i.e., independent and corporate venture capital, business angel, government-sponsored) and non-equity finance (i.e., personal investment, family and friend investment, debt finance). We find that debt finance is negatively associated with equity financing in high-tech firms. Moreover, in our sample of high-tech firms, we find that innovating firms, export-oriented firms operating in niche markets, and firms with high levels of human capital have a greater probability of being equity financed.

Bibliometric analysis of alternative financing for entrepreneurship

One of the main limitations of entrepreneurship is access to finance, especially in the early stages. Over the years, new sources of finance have evolved to respond to this need and provide new options for entrepreneurs. Using a bibliometric analysis, this paper examines the evolution of the academic literature and analyses the relationship between entrepreneurship and alternative financing over three periods of time (1975-1999, 2000-2010, and 2011-2020). This work aims to provide a clearer view of the evolution of this relationship and identifies current trends and future lines of research. The data were obtained from the Web of Science (WOS) database and systematized using SciMAT software. Results show that venture capital and business angels have become the main financing sources for entrepreneurs, being the most studied from different approaches, especially since 2000. Incubators in universities and research centers, corporate governance, and development of this type of financing in emerging countries are emerging as potential areas for further research in this field.

Business angels and early stage decision making criteria: empirical evidence from an emerging market

How do business angels assess a prospective entrepreneurial firm when they make an investment decision? This article examines a central question that informal venture capitalists have been struggling with for decades: What early stage decision making criteria do investors define and apply to reduce the volume of potential deals to a more manageable size? Based on semi-structured interviews with business angels in an emerging market, we show that investors are focused on the industry structure and product features, on the other side, our results also suggest a very strong support for the personality of the entrepreneur and management team. More specifically, entrepreneur trustworthiness is an essential element affecting an investor’s decision to close a deal. Business angels set requirements in terms of the entrepreneur’s equity stake in the start-up and monitoring tools to prevent the failure of investee firms. Our findings suggest that if there are warning signs that the project is in an existential crisis, most of the investors will reject their participation. We believe that our empirical results support both researchers and practitioners to establish a better understanding between the well-developed financial theories and the underresearched informal venture capital market in a Central and Eastern European country.

Prediction and Control: The Specific Role of Business Angels in the Investment Process

Prediction and Control: The Specific Role of Business Angels in the Investment Process

Start-up competitions as anchor events in Entrepreneurial Ecosystems: first findings from two German regions

ABSTRACT Entrepreneurial ecosystems (EEs) are currently a major theme of entrepreneurship research and policies designed to support entrepreneurship. However, the role of specific policy instruments in EEs often remains unclear. This paper contributes to research on that topic by analysing the role of start-up competitions (SUCs) in the contrasting German case study regions Berlin and Hanover. Based on 45 qualitative interviews with participants in two public SUCs, their organizers, and ecosystem experts, the role that the SUCs play in each EE is investigated. Both analysed SUCs serve as networking events that can be described as ‘anchor events’ for specific parts of their ecosystems. They provide strong support for participants and help local entrepreneurship support offices connect and allocate their resources efficiently. However, sub-networks of entrepreneurs and actors who are not connected to the SUCs are identified. The SUCs seem to work primarily for public actors, ‘solid’ entrepreneurs, and university spin-offs. International venture capitalists, wealthy business angels, and high growth firms are not involved in the competitions. Both analysed regions influence the perceived value of their competitions, e.g. in terms of the industrial expertise of jurors.

What Do We Know about Business Angels’ Decision Making Research Development? A Document Co-Citation Analysis

Business angels (BAs) mitigate the financial gap of early-stage ventures and get actively involved in ventures they invest in. Their crucial role in the start-up ecosystem is spurring interest in their decision-making processes when making investments. However, the research about their investment decision making is crumpled. So far, we know the knowledge base about BA decision making comes from a blend of interdisciplinary studies where psychology and finance had a significant impact in pushing the research to new levels. With this study, we review knowledge dyads in the BA decision-making field through bibliometric co-citation analysis.

Business Angels – Possible Source of Finance for the Development of the Company in Conditions of Sustainable Development and Corporate Social Responsibility

The aim of this paper is to present business angels as possible source of finance for the development of small innovative companies in the conditions of corporate social responsibility (CSR) and sustainable development. In the first part of this paper, we describe concept of corporate social responsibility and emphasize its importance. Later we define who is a business angel and explain why we believe that business angels are suitable type of finance for the development of small innovative socially responsible companies. We give three main arguments in order to support this idea.

“Pennies from heaven”? Market failure, circuits of capital and policy support for business angels: The case of cross-border angel investment

Angel investment is widely associated with economic development through entrepreneurial activities, and has attracted the attention of policy makers internationally, nationally and regionally, resulting in a range of measures to support the development of the market. In this paper we challenge this policy orientation and identify three key flawed assumptions on which it rests: the presence of market failure in the early stage risk capital market, the complementarity of angel and other sources of early stage finance, and the integration between the angel and venture capital circuits of capital. We develop a framework for the identification of market failure as both a supply-side and a demand-side phenomenon, demonstrate that venture capital and angel finance are substitutes not complementary funding sources and draw out the association between angel investment and venture underperformance, and build on the ‘circuits of capital’ literature to identify the increasing structural independence of the VC and angel investment markets which has implications for the link between angel financing and local and regional economic development. These issues are discussed in the context that stimulation of cross-border (international) investments by angel investors has emerged as an important topic of academic analysis and policy debate in Europe, not least on the basis that such investment will support the otherwise constrained growth and scale-up of entrepreneurial ventures. The paper concludes by outlining, in the policy mix concept, a basis for the systemic analysis of the development, implementation and impact of entrepreneurial finance policy.

Startup Accelerators

AbstractAccelerators have been becoming increasingly popular among young entrepreneurs interested in developing products, attracting investors, or establishing relations with industry represented by large companies.The focus of the studies is to conduct literature review due to the small number of scientific articles are available on this topic. The article aims to show the current state of knowledge about startup accelerators and the support they provide. It outlines what added value accelerators offer in their programs for young innovative companies.To achieve the stated aim, the authors combine a systematic literature review with a bibliometric analysis. The results of this research will be helpful in better matching the developed project with existing accelerator programs on the market. It can contribute to a better understanding of the principles governing the programs, program expectations of the accelerator and its partners with respect to the proposed solutions (corporations, business angels, and venture capital funds).

Acting as a Business Angel to Become a Better Entrepreneur: A Learning Innovation

TV shows such as “Dragons’ Den” and “Shark Tank” have become common teaching materials in entrepreneurial finance classrooms because they offer a window into the process of pitching to investors. TV exposure to pitch communication and business angels’ feedback is certainly a well-documented source of vicarious learning. It enables students to observe varying investment situations and learn from other entrepreneurs’ success as well as failure. Observation, however, does not replace direct experience. We combined vicarious learning and direct experience in order to enable students to learn how to take initial investment decisions, in practice. We originally proposed this training session in an entrepreneurship graduate program in France. This learning activity invites participants to become observers and actors in a real-life experience with entrepreneurs and angel investors. Students participate in a pitch session within a Business Angels Network (BAN). The BAN chooses entrepreneurs based on their applications and an evaluation meeting for the first round of a live pitch in their usual deal flow. Students are first spectators to the real-life pitch session, in which entrepreneurs face a team of five to 10 business angels (BAs). Then, students play the role of an active participant, making their own investment decisions in a report on each entrepreneurial project, as if they were BAs themselves.

Startup ventures and equity finance: How do Business Accelerators and Business Angels’ assess the human capital of socio-environmental mission led entrepreneurs?

ABSTRACT We investigate the role of entrepreneurs’ human capital on the potential of newly created ventures to receive equity funding from Accelerators and Business Angels using a resource-based approach to entrepreneurship theory. Using data from 10,563 for-profit innovative ventures, we find significant differences between those two groups. More specifically, formal education and founding experience of the entrepreneurial team is positively associated with the likelihood of the team to receive equity from Angels but negatively associated with the likelihood of the team to receive equity from Accelerators. Overall, our results are in line with the theoretical argument that human capital signals are important in reducing the information asymmetries faced by angels and ultimately driving entrepreneurs’ success in securing angel funding, but our results also suggest that some aspects of human capital signals do not contribute to the entrepreneur’s success in receiving accelerator funding. Our findings have important repercussions for the quality of design and operation of both private and state supported programmes and accelerator managers.